One topic that comes up a lot around tax season is deductions and whether you should take the Standard Deduction or itemize your deductions.
In this post I explain what the Standard Deduction is and when you would rather itemize your deductions.
(You might also be interested in this Post: Our Year End Tax Planning Guide)
The Standard Deduction reduces taxable income.
It is a lump sum deduction that eliminates many taxpayers’ need to itemize deductions such as medical expenses, taxes, interest, and charitable contributions. The Standard Deduction is a simplification: rather than track all of these small deductions, you just take one standard deduction.
|Single or married filing separately||$12,500|
|Married filing jointly||$25,100|
|Head of household||$18,800|
If you are over 65 or blind, then there is an additional per person amount:
|Married no matter how you file||$1,350 per person|
|Single or head of household||$1,700 per person|
There is also an amount for dependents of the greater of $1,100 or earned income plus $350.
Itemized deductions are all of the deductions allowed in the tax code (which I go through below). You can either take itemized deductions or the Standard Deduction; you should generally take whichever is greater.
Some taxpayers may not take the Standard Deduction and must, therefore, itemize their deductions. The Standard Deduction is not allowed for:
You should sum up your itemized deductions and compare them to the Standard Deduction to see which is greater. Generally, taxpayers benefit from itemizing deductions if they:
There are several deductions that you can itemize. Here are the big ones, along with their limits:
Medical and dental expenses. You can deduct medical and dental expenses if they exceed 7.5% of your adjusted gross income (AGI). So if an individual earned 100,000, only those expenses over $7,000 would be deductible.
State and local income, property, and sales tax.
These are deductible up to $10,000. There is no deduction for foreign real property taxes.
Mortgage interest paid. Interest on a mortgage used to buy a house is deductible with limits. For debt incurred after December 15, 2017, the total allowable debt is $750,000; for debt incurred before December 16, 2017, the total allowable debt is $1,000,000. If your mortgage exceeds these limits, you will not deduct all of the interest you pay.
Charitable contributions. An individual’s charitable cash contributions are limited to 100% (2021) of AGI. You can carry over any amount over the limit for up to five years. There is an exception for payments to higher education institutions in exchange for the right to purchase tickets or seating at athletic events – these are NOT deductible. You don’t need receipts for donations under $250; for contributions over $250, you do.
Casualty and theft losses. A personal casualty or theft loss is deductible if the loss is attributed to a federally declared disaster.
Gambling losses. Gambling losses (cost of non-winning bingo, lottery, and raffle tickets, for example) are deductible only if you are also claiming gambling income.
Several expenses have been deductible in the past or may seem like they should be deductible but are not. These include (though this is not an exhaustive list):
While these are not deductible personal expenses, many of them may be deductible as business expenses. So, if you incur these expenses as a part of a business venture, you may want to structure your activities so that you can reduce your business income before it becomes personal income.
We can help you sort this out.
If you are confused about whether to claim the standard deduction or itemized deductions, we can help; this is, after all, what we do!
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Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.
He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.
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Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.
Jeff also has a long history of helping individuals manage their taxes and plan their finances including:
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Filing quarterly and annual taxes.
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Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.
Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.
Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004. After a career of public accounting and general management, Jody knows the value of good financials. Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.
He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles. His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.
He has a particular expertise in early-stage growth companies. His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.
Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller. He has experience across industries, which gives him a deep understanding of business.
Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.
In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.
He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.
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